Comprehensive Spending Review: crudely capping costs will undermine livelihoods

Before today’s Comprehensive Spending Review (CSR) statement, George Osborne announced that he wouldn’t be making any further immediate cuts in the welfare bill, in his bid to find £11 billion in public spending cuts over the next three years. He has been true to his word as far as next financial year goes, but then dropped a £4bn
bombshell landing on those on low incomes
in April 2015.

This is despite the growing evidence that there isn’t any room for yet more cuts to the benefits for families and working age people. Even before the impacts of the cuts really bite, hundreds of thousands of families are already struggling to put food on the table. Our recent report with Church Action on Poverty estimated that at least 500,000
people needed emergency food
support last year. Nevertheless, the Chancellor has introduced new caps on social security spending. These will set limits on the total spending on things such as tax credits and housing benefit.

Low paid workers will be hit hardest

These caps, to be introduced in 2015 if the Conservatives win the election, will have two principle effects. If the number of houses available doesn’t change, capping housing benefit will disconnect housing costs and state support.

These two changes coming together is likely to hit people on low incomes in expensive areas of the UK especially hard…

Crudely put, tenants will need to dip into other sources of income to pay their rent, which means less money for food, fuel and transport.

The other cap, on tax credits, will further reduce the incomes of the low paid and it will obviously hit those in low paid work the most. It is unclear whether these people count as the “hard working families trying to get on” in the Chancellor’s terminology, but they almost certainly will in their own. This cap will also undermine the gains people get from taking low paid jobs – surely not the intention of the Government’s welfare reforms?

Adding these two changes together is likely to hit people on low incomes in expensive areas of the UK especially hard – people in London and the south east of England may feel this especially keenly.

Investing now could cut spending later

There is another way of looking at the question of the rising welfare bill, though, one that the Government has largely ignored, beyond the Troubled Families programme.

Much of the welfare spending on working-age people is effectively the cost of failure. The failure of the economy to provide enough jobs that pay a decent wage; the failure of the education system to give people skills to compete in the modern economy and the failings of housing policy to provide sufficient affordable housing.

This kind of approach (…) would help George Osborne cut his uncontrollable welfare bills in the medium term.

But there are solutions. ‘Upstream investment’ – quite the opposite of the cuts we have been witnessing – would significantly reduce the cost of social policy failure that much of the welfare budget represents. It would make it far easier for more people to provide for themselves and their families properly, without relying on state support.

In education, in housing, and even to a degree in the economy, this kind of investment has been attempted, succeeded on a small scale, and yet not been expanded. Initiatives such as enhanced support for families with young children; tailored curricula for less academic children; primary health care initiatives and investment in social and affordable housing have all had their successes in helping give people the capabilities to live more independent and productive lives.

The truth is we can afford it

This kind of approach, though requiring more investment now, would help George Osborne cut his uncontrollable welfare bills in the medium term. And he can afford it: in the long term the savings would far outweigh the initial costs.

The cost would be a fraction of the money left uncollected in taxes through tax abuse by large corporations and wealthy individuals. This is an area where the Government’s levels of ambition seem woefully low, given what we know about the scale of the problem. The determination to clamp down strongly on the support given to poorer citizens is in marked contrast to the lethargy in tackling the rule breaking of the
ultra rich. 

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Author: Chris Johnes
Archive blog. Originally posted on Oxfam Policy & Practice.